By Tiernan Ray

Shares of insurance software vendor Ebix (EBIX), formerly Delphi Information Systems, are down $4.32, or 23%, at $14.75, following a negative 46-page report this morning, posted online, by Gotham City Research LLC that claims that the company’s “accounting is Unreliable, Inaccurate, and Incomplete,” its “tax strategy is a sham,” and its stock “deserves to be Halted” until there’s clarity on its Securities & Exchange Commission filings.

We read over 10,000 pages of documents from Sweden, Singapore, India, Australia, New Zealand, & the United States pertaining to the company. We consulted with professionals from the disciplines of forensic accounting, law, transfer pricing, background investigations, finance, and software. We found assets not adding, cash disappearing, and management misrepresenting. The more we looked, the more we found reality to be far worse than the prior critics had made it out to be. For example, we discovered a $66 million undisclosed related party loan1, $67 million accounting irregularity in long-lived assets, and Australian revenues at a fraction of what the SEC filings disclosed, per the Australian filings. We concluded that (i) Ebix’s financial statements are unreliable, inaccurate, and incomplete, (ii) their tax strategy does not appear sound, and (iii) the stock should be halted.

My colleague Bill Alpert wrote in Barron’s magazine print edition about Ebix way back in July of 2011 regarding the company’s suspiciously low tax rate as a result of its subsidiaries in Singapore and India:

The tax-savings from Ebix’s intracompany transactions with its subsidiaries in Singapore and India have been crucial to the cash flow and profit that Raina’s produced at the U.S. parent. There are many U.S. multinational firms that have been criticized for their use of international tactics to reduce their taxes—companies such as General Electric (GE) and this weekly’s publisher, News Corp. (NWSA). Still, Ebix merits attention. The solidly profitable software outfit’s effective tax rate in 2009 was 2.5%. In 2010 it was 1.1%.

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There are 14 comments

FEBRUARY 21, 2013 1:26 P.M.

DK1949 wrote:

I just checked out Gotham City Research LLC. The filing date for Gotham City fo the LLC was February 13, 2013. Their File Number is 5288439. Their Filing State is Delaware. Their (or his) only blogs are about Ebix. This guy is a short that was losing his butt and decided to make his blog legitimate by establishing an LLC to take down Ebix.

FEBRUARY 21, 2013 1:43 P.M.

Gary M wrote:

I am surprised that an announced short, with no track record of legitimacy, can put out a piece with unfounded allegations or rehash old charges, that have beer resolved by letter from the SEC, and have no consequences when it is plainly an attempt to manipulate a stock. Does the SEC have no interest in this type of activity?

FEBRUARY 21, 2013 2:04 P.M.

Anon wrote:

Ray, weren't the tax accounting practices of ebay given a clean bill of health a week back with the conclusion of the SEC review process?

FEBRUARY 21, 2013 2:08 P.M.

Rick B wrote:

EBIX is using tax savings strategies that you learn in undergrad. Who is this Gothem and why is the SEC letting them get away with this. BTW thanks to Gothem for driving the price down so I can make more money buying an undervalued company at a significantly cheaper price.

FEBRUARY 21, 2013 2:08 P.M.

Anon wrote:

sorry auto correct ebay=ebix.

FEBRUARY 21, 2013 3:03 P.M.

concerned wrote:

The maidstreet media should be liable for a class action suite, because of putting up storys with no known source.
Hit them and their owners hard for big$$$$$$$, and trace the short speculators and take everything they own.

FEBRUARY 21, 2013 3:09 P.M.

p2i wrote:

In all likelyhood, Gotham City Research is the same as Cooperfield Research using the same bogus reporting methods. Seeking Alpha doesn't publish Cooperfield Research articles anymore, only their blog. They needed a way to publish articles again so that they would be distributed to others and create even more articles that quote them.

FEBRUARY 21, 2013 4:20 P.M.

Stu wrote:

Class action was filed against Ebix in 2011 alleging the company overstated its account receivables.

Stu: The SEC cleared EBIX of this last month. They found no wrong doing. What EBIX is doing is perfectly legal although might be unAmerican to divert taxes dollars to foreign countries. By doing this (as many companies do) they are significantly reducing their tax liability.

FEBRUARY 21, 2013 5:10 P.M.

SHM wrote:

Rick, How can you call what they are doing unamerican? American business was built on people coming from oppressive business climates in other countries to benefit from the free market system in the U.S. Now that the U.S. has decided to punish those that are successful with higher taxes, why not take advantage of a better business climate in another country? The rersult is lower prices for the consumers, and a healthier company for investors.

FEBRUARY 21, 2013 11:30 P.M.

Rick wrote:

SMH: I'm not saying it is unAmerican, but some people could see it as. I'm long EBIX and like what they are doing.

FEBRUARY 22, 2013 2:09 P.M.

Anonymous wrote:

I'd like to know why Barrons didn't include their admission to Bloomberg:
"A copy of the Gotham City Research report was provided to Bloomberg News prior to publication. The author, who asked not to be identified by name out of concern about legal action from Ebix, said he had a short position on the stock."

SEPTEMBER 11, 2013 6:47 P.M.

p2i wrote:

It seems that your colleague Bill Alpert had very friendly ties with Marc Cohodes when Cohodes was head of Copper River. Copper River was a hedge fund that had a mandate to short stock. Presently, Mr Cohodes has a friendly relationship to Dan Yu who is known to be Gotham City Research. Now Greg Farrell has taken Mr Alpert's spot to write articles about Ebix.

SEPTEMBER 11, 2013 7:06 P.M.

p2i wrote:

By the way Copperfield Research started these short attacks in March, 2011 and Bill Alpert started writing about Ebix in Baron's that questioned Ebix's accounting in July, 2011. Former head of Copper River, Marc Cohodes list of friends.....old friend Bill Alpert, new twitter friend Dan Yu (aka Gotham City Research), old friend Sam Antar (a supporter of Gotham City and twitter friend of Mr Yu and Mr Cohodes) In July of this year Mr Yu and Marc Cohodes openly tried to gain the support of a NY Post writer on twitter to take a "look" at Ebix.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.